The California Franchise Tax Board has been known to garnish wages, freeze your bank account, or submit you to various unpleasantries even years after a perceived transgression of their rules. Sometimes, the taxpayer has not received a warning due to having moved to an entirely different state. Other times, the taxpayer’s employer is notified of an order to garnish wages per the FTB. Here are some of the ways I have heard clients get into trouble:
- List a primary residence in the State of California and not file their taxes there
- Not file their taxes at all
- File their taxes, but accidentally fail to report stock/option sales with profits from their various 1099 & 1098 forms received from a financial institution
I had a client once who, years later, and living abroad, had wage garnishment issues as a result of not reporting some money he made selling stocks. Another client had his entire bank account frozen for neglecting to file during the time he lived in Los Angeles. What both of these situations had in common was the ease of fixing the issue.
For the client with his accounts frozen, we simply filed the three years that he was missing (two of them had to go on paper returns). He sent using express mail and followed up. After a small $540 dollar fee, he got his accounts un-frozen and was given some time to pay the $3-4 thousand that he owed. The entire process took two and a half weeks from when he had me file his returns to when his accounts were un-frozen by the FTB.
The first step in resolving issues with the FTB is to immediately file CA Form 540 and include all income earned from worldwide sources. Then, contact the FTB separately to discuss the next steps on un-freezing the account or removing garnishment.
Below is an example of a standard withholding letter issued by the FTB:
We are Issuing THIS ORDER TO WITHHOLD to enforce payment of an amount due for California Personal Income Tax.
The taxpayer has not paid the amount due, shown above. (See reverse side for applicable sections of the California Revenue and Taxation Code.)
THIS ORDER ATTACHES TO ALL CREDITS, PERSONAL PROPERTY, OR OTHER THINGS OF VALUE IN YOUR POSSESSION OR UNDER YOUR CONTROL BELONGING TO THE TAXPAYER. THIS INCLUDES BUT IS NOT LIMITED TO, PAYMENTS DUE THE TAXPAYER AS A RESULT [SPECIFIC SITUATION SHOWING INCOME]. THIS ORDER PERTAINS TO A LIABILITY NOT CLAIMED HEREIN. . .
YOU ARE REQUIRED TO WITHHOLD the lesser of (1) the amount due shown above, or (2) the amount in your possession or under our control belonging to the taxpayer at the time you received this Order.
IN COMPLYING WITH THIS ORDER, WE REQUEST THAT YOU:
- NOTIFY the taxpayer that you are withholding funds pursuant to the order by delivering PART 3 to the taxpayer as soon as possible
- RETAIN ANY FUNDS WITHHELD FOR 10 BUSINESS DAYS FROM THE DATE YOU RECEIVED THIS ORDER OR UNTIL THE DISTRIBUTION OF FUNDS HAVE BECOME FINAL, WHICHEVER IS LATER. AT THE END OF THE HOLDING PERIOD, REMIT ANY FUNDS WITHHELD UNLESS YOU HAVE RECEIVED A RELEASE FROM THIS DEPARTMENT. PLEASE INCLUDE A COPY OF THIS ORDER WITH YOUR REMITTANCE
- COMPLETE the questionnaire on PART 2. Please attach your remittance, if any, to that page and mail it to the Franchise Tax Board office shown at the top of this page (envelope enclosed).
- ADVISE any interested parties to present claims to the Franchise Tax Board.
- REFER to PART 2 if you possess or control any property other than cash, payments or credits belonging to the taxpayer.
